Risk Management Practices Followed by Islamic Banks of Pakistan

Abstract

The study is conducted to investigate an empirical analysis of risk management practices of Islamic banks in Pakistan, with objectives to find whether Islamic banks working in Pakistan are efficient enough in risk identification, risk assessment analysis and its efficiency in credit risk management and policy recommendation for risk management in general. Financial institutes are considered to be one of the important role playing sectors in the economic growth and financial establishment of any country. Banks are part of this sector. In country like Pakistan, we have two types of banking system: one is conventional banking system and the other is Islamic banking system. This study concentrates on the Islamic banking system. Risk is one of the important factors for the success of any institute. This study focuses on Risk Management Practices of Islamic banking system in Pakistan. Data population of the study is Islamic banking system of Pakistan. For the data collection we used questionnaires. For this study there are five independent variables: understanding risk and risk management, risk assessment and analysis, risk identification, risk monitoring, credit risk analysis and one dependent variable, Risk Management Practices. Initially, data reliability was found by applying Cronbach’s alpha, after that we adopted Pearson’s correlation test to detect the multicollinearity problem. No such potential problem was detected; so we applied regression model to analysis the impact of independent variables on dependent variables. From the analysis we concluded that there were variables which have positive significance impact on the dependent variable Risk Management Practices.